Month: August 2018

The Mall is Dead. Long Live Bricks-and-Mortar?

Recently, GGP shareholders approved the Brookfield Property merger deal by a wide margin. Sure they did. The value was reported to be in the range of a 6 percent cap rate, a number that any self-respecting, not fee-driven real estate owner would consider aggressive.

Yes, I have heard the commentary. The cap rate was on the low side because the properties are Class-a, located in great locations and therefore protected from the “retail apocalypse” (if that’s still a thing). Also, GGP has begun to convert many of these malls into more experiential facilities, which serves as proof positive that they will overperform in the new age of retail. Now that I mention it, what in fact is the new age of retail? Have retail tenants even settled on a proven new-age prototype around which we can build new-age properties?

For the record, brick-and-mortar retail will long outlast Amazon’s break-even flirtation with retail. That doesn’t change the fact that GGP’s portfolio does not represent the stable investment touted by the various commentators. I think the only question that remains is whether it is a redevelopment or a covered land play.

Something everybody in retail seemingly agrees on is that the department store is a new subset of endangered species. When Sears finally brings its going out of business sale to an end, all its stores will close—including the “class-A” locations. In 2009, the Wall Street Journal published an article titled Empty Mall Stores Trigger Rent Cuts, highlighting the effect of co-tenancy clauses on retail properties. This property-killing clause can be found in almost every retail lease, entitling tenants to rent reductions and even terminations if occupancy (including unowned portions) drops below a predetermined threshold. To quote the article, “The result is a ripple effect, as failures trigger co-tenancy violations, which in turn lead to canceled leases, more vacancies and more violations” and ultimately the demise of an otherwise healthy property.

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Roofstock Disrupting Single Family Rentals

This is the second in a series of articles chronicling notable real estate disrupters fueled by property and neighborhood data from ATTOM Data Solutions

Top real estate disrupter Roofstock was formed when hedge-fund thinking collided with the often-inefficient single family real estate market in the wake of the Great Recession.

In 2009 firms like Blackstone, Starwood Capital Group, Colony Financial and American Homes for Rent each began purchasing tens of thousands of single family homes to hold as rentals — lured by discounted foreclosure properties and plummeting homeownership rates that foreshadowed a strong rental market in the years ahead.

Inefficiencies in the real estate marketplace grated against the data-driven culture of many involved in this massive shift in residential real estate ownership, including Roofstock’s Beasley, who at the time was CEO of Starwood Waypoint Residential Trust, a firm that at one point managed more than 15,000 U.S. single-family rental properties.

“(Roofstock) was really born out of frustration of trying to sell homes we had a Waypoint,” said Beasley, who co-founded the company along with Gregor Watson in mid-2015. “We found it was very difficult to sell homes with tenants in them because the traditional MLS was really set up to sell vacant homes … It seemed kind of crazy that you had to wait for the tenants to move out … it was costing 10 to 12 percent on average to sell these homes.”

Rapid adoption of the Roofstock platform over the past two years is proof that real estate disrupters were needed in the single-family rental (SFR) marketplace, according to Beasley, who said the platform went from $40 million in transactions in 2016 to nearly $1 billion 2017 — a 25-x increase. Roofstock charges sellers 2.5 percent and buyers pay 50 basis points on transactions to use the platforms big-data analytic tools.

Roofstock raised $35 million in Series C funding in 2017, according to an RE:Tech report, which listed that as one of the top 20 notable real estate startup fundraising deals for the year.

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Best Neighborhoods for Real Estate Buying and Investing

IRVINE, Calif. – August 2, 2018 — ATTOM Data Solutions, curator of the nation’s premier property database, today released its 2018 Neighborhood Housing Index, which uses new neighborhood boundary data to rank more than 10,000 neighborhood housing markets nationwide based on six factors impacting the hyperlocal housing market: affordability, home price appreciation, school scores, crime rates, unemployment rates and property taxes (see more in the methodology enclosed below).

The top five U.S. neighborhood housing markets based on the index were the Pine Ridge neighborhood in the Naples, Florida, metro ($632,871 median price); Westlake neighborhood in the Mobile, Alabama, metro ($196,179); Union neighborhood in the San Jose, California, metro ($795,000); Westmoreland neighborhood in the Charlotte, North Carolina metro ($326,000); and Hunters Hill neighborhood in the Denver, Colorado, metro ($271,000)

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Cap Rates Begin to Rise for NYC Apartment Buildings

Investors have become less willing to pay top prices for apartment buildings in New York City. Prices on apartment assets in Manhattan south of 96th Street have dropped slightly relative to income, and have lost their upward momentum in the rest of the city.

Apartment buildings in the city are still selling—investors spent more on them in the first half of this year than during the same period in 2017. And a few giant sales, like the $905 million purchase of Starrett City in Brooklyn to a joint venture of the Brooksville Co. and the Rockpoint Group, are pushing up total sales volume figures. But as interest rates push higher, investors are becoming more cautious.

“Nobody wants to pay the peak price,” says Jim Costello, senior vice president with New York City-based research firm Real Capital Analytics (RCA).

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Wall Street Resurrects Another Financing Tool Killed by Crisis

(Bloomberg)—Investors are breathing life back into a once-dead financing tool. The market for bundled loans used to fund riskier real-estate projects is on pace for a post-crisis record after all but disappearing during the 2008 crash.

Sales of commercial real estate collateralized loan obligations are expected to double from last year to as high as $20 billion this year, which would be the highest since 2007, according to industry analysts.

The renaissance of the so-called CRE CLOs — which are used to fund properties that don’t qualify for traditional financing, such as suburban office complexes, multi-family housing and malls that are in transition — is being hotly debated. Some investors like the better returns and protection from rising interest rates from the floating-rate securities, while others warn of the higher risk of defaults and looser underwriting standards.

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Rising Interest Rates, Bid/Ask Gap Lead to Tempered Growth in Investment Sales in First Half of 2018

Amid uncertainties related to rising interest rates, the over-extended real estate cycle and a lingering bid/ask gap, investment sales volume remained steady in the first six months of the year, while one property sector—hotels—posted a standout performance.

Research firm Real Capital Analytics (RCA) reported in its latest U.S. Capital Trends study that deal volume totaled just over $236 billion—a 4.0 percent increase year-over-year—in the first six months of 2018. For the second quarter alone, there was a 2.0 percent year-over-year gain in deal volume, which totaled $118.8 billion.

This is slightly ahead of the pace seen in 2017, though much of the activity in the first half of the year was driven by big portfolio deals, a trend likely to continue in the third quarter, notes Jim Costello, senior vice president at RCA, which tracks sales valued at over $2.5 million.

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Campus Apartments’ Student Housing Investment Strategy

Campus Apartments, under the leadership of President & Chief Investment Officer Dan Bernstein, is one of the U.S.’s largest providers of on- and off-campus student housing.

Since joining the Philadelphia-based company in 1993 while still in college, Bernstein has risen through the ranks and now oversees Campus Apartments’ investments, operations and asset management groups. During his 25 years, he has created high-profile public-private partnerships and has been involved in more than $2 billion of development and acquisitions.

Bernstein took some time to talk to MHN about his student housing investment strategy.

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